The importance of having enough cash on hand is well known to all entrepreneurs and when it comes to selling online, things are no different. Even the best online sellers experience decreases in sales and supply-chain complications which can impact cash flow, but sometimes the need for more funds is driven by opportunity.
In Quickbooks’ 2019 The State of Small Business Cash Flow report, 61% of businesses from around the world revealed that they have struggled with cash flow, with 42% experiencing challenges in the 12 months prior to the report. However, despite these hardships, Amazon’s 2020 SMB Impact Report shows how eCommerce continues to thrive.
With that said, what are some of the financial challenges faced by online sellers, and how can you overcome them to increase your chances of success? Let’s get started and dive right in.
Challenge #1: Maintaining Visibility on Amazon
With over 500 million products sold just on Amazon.com alone, it’s no surprise that sellers don’t find themselves in front of a customer’s eyes easily. There’s a staggering amount of competition out there and if your store doesn’t appear on the first few pages of search results, customers may never discover your items, leading to a loss in sales.
Are you selling a tangible product on Amazon? If yes, then why aren’t you advertising on Amazon to get more eyes on your products? With Amazon Sponsored Ads (Sponsored Products, Sponsored Brands and Sponsored Display) you can run ads on both search results and product pages.
Challenge #2: Delays in Marketplace Payouts
Whether you’re selling on Amazon, Walmart, Wish, or one of the many other marketplaces out there, most cash flow problems result from delays between the point of sale and the marketplace payout of your earnings.
Even though the sale itself happens quickly, with some orders being purchased, shipped, and delivered in the span of only a day or two, it can take much longer to see the funds hit your bank account. Meanwhile, as you wait for your profits, you still must cover your inventory, marketing, fees, and logistics costs.
Challenge #3: Inventory Demands to Expand Your Business
Another common reason for cash flow issues is the inventory struggle. Unless you’re drop-shipping, you need to buy your inventory in order to have products to sell. If you can get that inventory at a discounted bulk price, you’ll want to do that, and a steady and reliable cash flow is crucial to take advantage of those opportunities.
This sounds easy enough in theory, but when you remember the delays between the sale and the payout from the marketplace, this challenge can be a difficult one, especially for new sellers. Even after all the profits land in your account, there’s a limit to how much growth you can achieve.
Let’s use Luke as an example:
Luke has been selling swimsuits for years, and his swimsuits cost him $10 per unit to stock. Luke has $50,000 to start the quarter, so he buys 5,000 units which he will sell for $20 each. His gross earnings are $100,000 but when you subtract the cost of goods ($50,000), the ~15% marketplace fee ($15,000), and the ~25% operational expenses ($25,000), Luke is left with $10,000 profit.
If he continues to invest the profits back into his business as the quarter proceeds, he’ll start to see growth, as seen in the table below:
As you can see, between months 1 and 4, Luke has only been able to grow his business by just under 25%. This is primarily due to Luke’s profits being tied up in additional inventory. Likewise, the constant demand for more inventory to expand your own business means your funds are often tied up.
In addition, Luke would like to consider advertising his products on Amazon in order to attract more customers and improve cash flow, however, how will he deal with the costs that come with running ads?
So, how can you grab the opportunity of an upcoming peak consumer spending season and cash in on potential sales? Everything is delayed, including your earnings, you’d like to run advertisements, and now you need cash to get more of the right inventory — that’s the cash flow problem.
Solving the Cash Flow Problem
According to CB Insights’ 2019 analysis, 29% of newly established businesses fail because they have run out of cash. To avoid this, consider a few things to do that can ensure your inventory remains stocked.
- Examine sales channels – When you properly analyze your sales channels, you’ll be able to optimize the amount of inventory you buy and sell at any given time. Paying upfront for products that have shorter sales cycles can help speed up cash in, allowing you to estimate the best time to experiment with newer products that may have longer sales cycles.
- Plan properly – Forecasting your cash flow, and budgeting will help you organize your finances and give you peace of mind. Taking a look at your balance sheet and PnL and making sure that you’ve included all expenses (such as inventory, seller fees, advertising, payroll, office supplies, etc.) will help you to determine what is a necessary and fixed cost and what you might be able to spend less on.
- Use external funds – Once you have taken a thorough look at your expenses, you may find that there is a need for external financing.
To see how external financing may help, let’s revisit Luke’s swimsuit business. This time however, Luke has accepted a $100,000 in working capital funds after his first month of sales. If Luke uses a third of his advance ($33,333) each month to increase his inventory without going over his forecasted sales expectancy, his store earnings and profits would look very different. By the end of month 4, he would have grown his monthly profits from $10,000 to $18,577.
As you can see, the growth potential is much greater with the extra boost of working capital funds and leads to a profit gain of an impressive 86% between months 1 and 4, compared to 25% growth from the same store without the advance.
How Can Payoneer Help?
To solve the cash flow challenge and enable online sellers like you to take advantage of potential growth opportunities, Payoneer is offering the Capital Advance program.
Capital Advance can help you grow your business by enabling you to receive extra working capital funds in minutes. You can use these funds to pay for your advertising, buy more inventory before peak seasons, expand into new products and markets and much more. This working capital solution essentially can give your business the extra boost it needs along with a convenient gradual settlement plan and one fixed fee.
As a Sellics customer you’ll get instant access to Payoneer’s top-tier Grow offers, which are large cash injections for your business.
So if you are looking to grow your eCommerce business so you can be like Luke, click here to learn more about working capital.
*The Grow offer is eligible for Sellics customers with a tenure of over 3 months. Nothing contained herein shall constitute a legally binding obligation to provide you with any capital advance services. The Capital advance program and services are provided by Payoneer Early Payments Inc. (“PEPI”) and are subject to PEPI’s terms and conditions.